IRBA Newsletter Issue 53

Issue 53 | January-March 2021 17 LEGAL cont. 2. Failure to disclose financial interest as director in the intermediate and development entities, as required by Section 234 of the Companies Act. 3. Failure to disclose in the financial statements full details of a related property transaction involving a company of which the respondent was a director and from which substantial secret profits were made. 4. Failure to comply with the following sections of the Companies Act: Section 179(1)(b)(ii); Section 226; Section 234; Section 238; Section 239; Section 242; Section 286(1); Section 287; Section 295; and Section 309. The respondent pleaded not guilty to all charges and the matter proceeded in terms of Section 50 of the Auditing Profession Act (APA), read together with Rule 6 of the Disciplinary Rules. After careful considerations of both parties’ submissions, the Disciplinary Committee concluded on the merits aspects of the matter and was driven to its findings having regard to the following considerations: 1. Although the respondent was not present at the Dubai meeting, Mr Bagash had relied on the representations made by the South African delegation. 2. Jazira was expressly promised to earn returns from the investments, the nature and extent of which were described in the Profit Sharing Loan Agreement. The committee accepted that the Profit Sharing Loan Agreement relating to Indaba Investment had been altered to a Shareholder Loan Agreement, which changed the nature of the return that Jazira would be entitled to receive. However, the committee’s view was that the alteration did not detract from the conduct of the respondent. 3. The evidence led by the IRBA showed how the funds invested by Jazira had been dealt with by the respondent, as the Chief Financial Officer of Indaba and Sea Edge; and that these funds were utilised to fund the acquisition of properties by the intermediate entities that were later sold to the development entities at substantial profits. Moreover, the respondent was the director of these entities and was therefore aware of the transactions by the entities. 4. The evidence showed that the respondent was a director at both the affected intermediate and development entities and was materially interested in the transactions relating to sales of properties between these entities, from which substantial profits were earned but not disclosed to Mr Bagash – a non-disclosure that was intended to deceive Mr Bagash. 5. The annual financial statements of both the intermediate and development entities prepared and signed off by the respondent were false and misleading because they did not disclose the secret profits from the property transactions. 6. The evidence of the IRBA expert witness had confirmed that he had considered the financial statements of the entities and did not find evidence of disclosure of the related party transactions between the entities. 7. The IRBA’s analysis of the respondent’s plea wherein he had admitted guilt to certain provisions contained in the Companies Act was also considered. In November 2015, the committee subsequently found the respondent guilty of all four charges levied against him. In light of the committee’s finding, the matter proceeded to a sanctions hearing in February 2016, in terms of Section 51 of the APA, read together with Rule 7 of the Disciplinary Rules, wherein the parties were accordingly given an opportunity to submit evidence in mitigation and aggravation of the sanction. The respondent elected not to attend the hearing, as he had adopted the attitude that he would review the proceedings that led to his conviction on the charges preferred against him. Then, the committee proceeded to consider written and oral submissions made by the IRBA. After a review of the IRBA’s submissions, the committee concluded that the harshest permissible sentence should be considered. This consideration was in light of the manifest dishonesty displayed by the respondent, as well as the breach of trust and material non- disclosure in his dealing with the funds of a foreign investor, who reposed unqualified trust and faith in the respondent for the proper administration of the investment into local business projects on invitation by the respondent and his fellow partners. The committee would not have hesitated to direct the immediate cancellation of the respondent’s registration with the IRBA, had the respondent still been registered. In view of the respondent’s deregistration from the IRBA, the committee considered other appropriate forms of sanctions that did not detract but reflected the severity of the charges. These were considered after taking into account the respondent’s personal circumstances, which the committee pieced together from the evidence presented, the nature of the misconduct of which he had been found guilty and the public interest factor of relevance. Thus, in imposing a sanction, the committee measured the personal circumstances of the respondent against the seriousness of the charges for which he had been convicted. It also agreed with the submissions made by the IRBA that the convictions involved dishonesty and deception from which the respondent enriched himself and a family trust; and that the dishonesty was made worse by the fact that the respondent sought to conceal it through a non- disclosure of material facts in financial statements that he had made available to Mr Bagash. Based on the above, the committee made the following order: 1. Fines totalling R300 000 in respect of the four charges; 2. The respondent to pay costs in the amount of R1 200 000; 3. Publication, in IRBA News and a local newspaper circulating widely in KwaZulu-Natal, of the committee’s findings and the sanction imposed, including the respondent’s name and the name of his firm; and